SVB’s Stranded Deposits Spread the Pain From Tech to Napa Valley
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(Bloomberg) — The ripple effects of one of the biggest US bank runs in over a decade are reaching a wide variety of businesses, as companies from startups to vineyard owners raise alarms.
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Silicon Valley Bank, once a darling of the California financial system, fell swiftly on Friday, a day after investors and depositors tried to make $42 billion in withdrawals. Roku Inc., LendingClub Corp. and Eiger BioPharmaceuticals Inc. were among dozens of companies that revealed they have deposits stuck at the bank.
The stranded funds show that SVB’s troubles are spreading throughout the Silicon Valley ecosystem and pose a risk to the economy at large. Former Treasury Secretary Lawrence Summers warned that there will be “severe” consequences if regulators don’t fashion a smooth transition for Silicon Valley Bank.
“It certainly is going to have very substantial consequences for Silicon Valley — and for the economy of the whole venture sector, which has been dynamic — unless the government is able to assure that this situation is worked through,” Summers said in Bloomberg Television interview.
SVB Financial Group, the bank’s parent, has been well-known for its links to startups and well-established technology companies in the Golden State and beyond — many of which provided millions in deposits. The US Federal Deposit Insurance Corp. insures deposits up to $250,000. More than 93% of SVB’s domestic deposits were uninsured at the end of last year, the bank said in a filing.
Around 26% of Roku’s cash and cash equivalents are held by SVB, or around $487 million, the streaming technology company said in a Friday filing. SoFi said it has a $40 million lending facility provided through SVB, which is “unaffected” by the FDIC’s receivership.
SVB holds around $8.3 million of Eiger’ deposits, it said. And beyond Silicon Valley, even Northern California’s wineries were feeling the pain. The bank has been a prominent lender to the industry, with locations in the vineyard areas of Napa and St. Helena.
Rocket Lab USA Inc.’s shares fell after the launch provider said it has deposits with Silicon Valley Bank. The company has about $38 million in its accounts, or about 7.9% of the startup’s cash and equivalents, it said Friday in a filing.
In contrast, SoftBank Group Corp.-backed insurance fintech Lemonade Inc. said it has less than $7,000 in cash at the bank.
Representative Anna Eshoo, a California Democrat whose district includes parts of Silicon Valley, said in a Twitter post that the FDIC should “provide more clarity to depositors about when future dividend payments will be made in the short term as well as the long-term status of their funds.”
Some stranded deposits at SVB may have been meant for payrolls, a concern raised by Y Combinator Chief Executive Officer Garry Tan among others. He said in a Twitter post that startups could be wiped out by the collapse.
“If you have payroll and you’ve been tied up in Silicon Valley Bank and that money – maybe $250,000 is available on Monday – if you have 50 employees making $150,000, you’re in a deficit of about $100,000 just this Monday, so everyone is quite nervous,” Jenny Fielding, co-founder and managing partner of venture capital firm The Fund, said in a Bloomberg Television interview.
Vimeo Inc. and LendingClub also revealed their exposure to SVB in the wake of the collapse.
“There are dozens, if not hundreds, of startups that were planning to use that cash to meet their payroll next week,” according to Summers, a Harvard University professor and paid contributor to Bloomberg Television. “If that’s not able to happen, the consequences really will be quite severe for our innovation system.”
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